SEC gives year's reprieve for smaller firms' reports

Federal regulators gave smaller U.S. public companies and overseas firms a reprieve Wednesday, delaying the deadline for them to provide a special assessment of the quality of their internal controls.

The Securities and Exchange Commission announced that foreign firms traded on U.S. markets and so-called non-accelerated filers--generally, companies that have a public stock float of less than $75 million--will not have to provide the reports until their fiscal years ending on or after July 15, 2006.

That yearlong delay is welcome news in particular for smaller firms, which have howled about the time and expense of complying with the requirements under Section 404 of the Sarbanes-Oxley Act.

The law requires company management to evaluate the quality of the firm's internal controls, which range from security and asset protection to ensuring accurate financial reporting, and mandates that independent auditors report on that assessment.

For large companies, that effort has cost millions of dollars. The price tag is lower for smaller firms, but they frequently say they are less equipped to bear it because of their size.

SEC officials, however, continued to stress that the extension is not a free pass.

"Section 404 reporting has the long-term potential to substantially improve the reliability of financial reporting," Alan Beller, director of the SEC's division of corporation finance, said in a statement.

"Given the burdens in designing and implementing Section 404 compliance for smaller and non-U.S. companies, this extension strikes the right balance. Companies should use the extension not to delay but to improve the quality of their efforts," he said.

Larger companies already are filing the required assessments with their annual reports this year, and several have reported deficiencies or material weaknesses with their internal controls.